Proposed tax rocks e-tailers

Amazon and other Web retailers oppose New York’s proposal to collect sales tax

Online retailers and catalogers alike are facing a new challenge with the news that New York State is looking to charge them taxes for doing business in the state, despite not having any office there. The new “Amazon Tax,” which is awaiting approval from Governor David Paterson's office, is expected to meet with opposition, though it hasn't met with much surprise.

The bill, approved by New York legislators, will require out-of-state online retailers to begin collecting sales taxes on purchases shipped to New York addresses, meaning that companies such as Ama­zon, which have no employees or operations in New York, will be required to collect state taxes because several of its affiliates live in the state. It would effectively end tax-free online shopping in New York. The Direct Market­ing Association has said that it would support any legal action taken against the bill.

When reached, Amazon.com said that it was too early to com­ment on the proposal. However, Craig Berman, director of strate­gic communications at Amazon.com, did confirm in an e-mail that the online retailer is “still reviewing the final language from Albany regarding the proposed change to sales tax collection requirements.”

The bill is “about leveling the playing field, as some of the top online retailers are already paying tax in NY state including Target.com and Walmart.com because they have physical stores in the state,” said Matt Anderson, spokesperson for the division of the budget in New York Gover­nor Paterson's office. “Sites like Amazon.com and NewEgg.com have a competitive advantage over other sites who are paying the sales tax, and we would like to even this out.”

While retailers are looking for ways to respond to the state, trade organizations are also considering the legality of the issue. The adoption of this legislation is akin to New York “hanging out the ‘unwelcome' sign to electronic commerce,” according to Mark Micali, VP of government affairs at the DMA.

Both the DMA and the National Retail Federation are trying to determine the con­stitutionality of the bill. Micali noted, “We think it goes against the spirit of the 1992 Quill v. North Dakota decision,” which effectively determined that out-of-state retailers cannot be required to collect sales tax on purchases sent to states where they did not have a physical presence.

The term “physical presence” is really at the heart of the debate, with the state asserting that online retailers such as Amazon hold a physical presence in the state because they report sales from affili­ates that live there.

Micali, who expressed strong opposition when the bill was first proposed in mid-February by former governor Eliot Spitzer, called the law “an unabashed attempt by New York State government to expand the reach of its tax system across state borders to businesses which have no physical pres­ence in the state.”

The NRF, for its part, has been work­ing on a multistate project to streamline retail regulations and, according to NRF VP Maureen Riehl, the measure by New York does not represent a move toward these goals.

“While New York has historically pushed the envelope in the tax arena in terms of extending its reach beyond state borders — not just in the retail sector — we're scratch­ing our head about this,” she said.

The online retail industry is not the only area that would be impacted by the law. Catalogers would also be affected by the law as currently proposed.

“It is not unexpected. States are hungry for revenue because the federal govern­ment has made them responsible for pro­viding infrastructure, and this is a way for them to help raise their earnings,” said Hamilton Davison, executive director of the American Catalog Mailers Association (ACMA). “But it is important for them to consider that the Internet is an important channel for Americans to receive goods and services that they may not have access to and it gives entrepreneurs the opportu­nity to create jobs.”

While the ACMA has yet to take any action, Davison did say that it is still reviewing the language and considering ways to push Washington to dismiss the bill, especially because online catalogers and retailers “are not using all of the ser­vices that state taxes afford physical busi­nesses in the state.”